https://nighthawkrottweilers.com/

Business

Groupon issues ‘going concern’ warning as Chicago-based online marketplace ends lease for River North HQ – Chicago Tribune




Groupon, the struggling Chicago-based online marketplace that built its business model on short-term daily deals, may itself be running out of time.

Now under the management of a Czech investor, Groupon issued a “going concern” warning during a tepid first-quarter earnings report this week, signaling the company could be insolvent within a year.

“We recognize that turning our business around is going to be difficult and that it won̵[ads1]7;t happen overnight,” interim CEO Dusan Senkypl told investors during the earnings call on Wednesday.

Groupon also revealed it is ending its lease at its huge River North headquarters next January – two years early.

The former Chicago tech unicorn, which has cut staff and retooled amid declining revenue, had a net loss of $29 million in the first quarter and about $164 million in cash remaining as of March 31, according to a filing with the Securities and Exchange Commission.

Last year, Groupon spent $136 million on operating activities, meaning belt-tighteners and revenue generators will soon have to take action to keep the online marketplace known for discounts on laser hair removal, kickboxing classes, donuts and other deals open for business.

“Continued cash flow and operating losses indicate that we may not be able to meet our obligations over the next twelve months,” the company said in its quarterly report.

In March, Senkypl, a Czech investor and Groupon’s largest shareholder, replaced Kedar Deshpande and took over as Groupon’s interim CEO. Senkypl, which built a 22% stake in the company, entered into a standstill agreement as part of the appointment, limiting its stake to 25% for one year.

Groupon, which has been losing money for years, was engaged in a “transformational strategy” under Deshpande, the former Zappos CEO, who took the helm in December 2021. The plan focused on cutting costs through downsizing, with two rounds of layoffs eliminating total 1000 positions.

The company had 2,904 employees worldwide, including 799 in the United States, at the end of 2022, according to SEC filings. A further 700 employees were made redundant during the first quarter.

Senkypl outlined the eight-point transformation strategy during the earnings call, and in a letter to shareholders. The goal is to follow the path of a Groupon clone in the Czech Republic, which successfully transformed from a “flash site with daily deals to a destination experience,” he said in the letter.

Top of the to-do list is fixing the supply side of the marketplace by attracting and retaining local sellers with more flexible online offerings. The process of moving merchants away from the deeply discounted daily deals format will take at least 12 months, Senkypl said.

The going concern warning may be a growing concern for investors.

Auditors are required to issue a going concern warning when they believe a company may default on its debts within 12 months. Sometimes, but not always, it’s a prelude to a bankruptcy filing, according to Dan Rahill, a longtime Chicago tax partner and past chairman of the Illinois CPA Society.

“The accounting firm is raising the flag,” said Rahill, who now serves as a wealth strategist at Wintrust Wealth Management. “It does not mean that they go bankrupt – many companies with continuing operations have turned it around. But it makes the public aware that the company’s financial situation is precarious.”

A Groupon spokesperson did not respond to a request for comment.

In 2010, Groupon moved into its headquarters at 600 W. Chicago Ave., becoming one of the largest tenants at the former Montgomery Ward catalog warehouse, leasing more than 300,000 square feet through January 2026. The entire space is listed for sublease.

In January, Groupon exercised an option to terminate the lease two years early, requiring the company to pay a $9.6 million fine, according to SEC filings.

Groupon’s River North headquarters was once the center of Chicago’s tech ecosystem.

Launched in 2008, Groupon created its own e-commerce niche with heavily discounted daily deals on everything from manicures to meals, sent out to subscribers via email.

The company had more than 11,000 employees worldwide at its peak in 2012, but has been in steep decline for much of the past decade as its once cutting-edge business model struggles in a far more crowded and competitive digital marketplace.

Google tried to buy Groupon for $6 billion in 2010, but investors and co-founder Andrew Mason said no deal. In 2011, Groupon was valued at $25 billion, and the company went public that fall, raising $700 million in the largest tech IPO since Google.

The market value at Friday’s stock market close is around 100 million dollars.

rchannick@chicagotribune.com



Source link

Back to top button